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HYDROFARM HOLDINGS GROUP, INC. (HYFM)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 net sales fell 33.3% year over year to $29.4M, gross margin compressed to 11.6%, adjusted gross margin to 18.8%, and adjusted EBITDA declined to $(4.4)M; management attributed margin pressure to lower manufacturing volumes despite the best proprietary brand mix of 2025 .
  • Revenue missed Wall Street consensus ($35.73M estimate vs $29.35M actual) and EPS consensus was unavailable, reflecting thin coverage; the miss was driven by a 32.2% volume/mix decline and a 1.1% price decrease amid industry oversupply . Values retrieved from S&P Global*.
  • Guidance update: the company now expects full‑year 2025 adjusted gross profit margin of approximately 20% and reaffirmed reduced adjusted SG&A, inventory reduction, and positive free cash flow for the final nine months of 2025, with capex under $2M .
  • Strategic actions and potential catalyst: announced CEO transition back to William Toler effective December 1, 2025, and additional restructuring to consolidate U.S. manufacturing facilities (estimated incremental $2M annual cost savings on top of $3M previously announced, with line of sight to ~$4M more) .

What Went Well and What Went Wrong

What Went Well

  • “Best quarterly proprietary brand sales mix of 2025” supported by heightened investment in proprietary products and portfolio restructuring; management remains disciplined on cost management and brand focus .
  • 13th consecutive quarter of adjusted SG&A reductions; adjusted SG&A fell 7.4% year over year to $9.9M, continuing multi‑year cost discipline .
  • Free cash flow improved by $5.1M year over year in Q3 to $(0.2)M, driven by working capital benefits from inventory reduction; liquidity remained adequate with $10.7M cash and $4M revolver capacity .

What Went Wrong

  • Net sales declined 33.3% to $29.4M, with a 32.2% volume/mix drop and 1.1% price decrease; gross margin fell to 11.6% due to lower manufacturing production volumes .
  • Adjusted EBITDA fell to $(4.4)M from ~breakeven, driven by lower net sales and adjusted gross margin despite SG&A savings .
  • Consensus revenue miss (actual $29.35M vs $35.73M estimate), underscoring persistent industry oversupply and tariff uncertainty cited by management; EPS consensus unavailable. Values retrieved from S&P Global*.

Financial Results

MetricQ1 2025Q2 2025Q3 2025
Net Sales ($USD Millions)$40.53 $39.25 $29.35
Gross Profit ($USD Millions)$6.88 $2.79 $3.41
Gross Profit Margin % (GAAP)17.0% 7.1% 11.6%
Adjusted Gross Profit ($USD Millions)$8.53 $7.53 $5.51
Adjusted Gross Profit Margin %21.0% 19.2% 18.8%
SG&A ($USD Millions, GAAP)$17.86 $16.14 $16.37
Adjusted SG&A ($USD Millions)$10.98 $9.80 $9.89
Net Loss ($USD Millions)$(14.39) $(16.86) $(16.39)
Diluted EPS ($)$(3.12) $(3.63) $(3.51)
Adjusted EBITDA ($USD Millions)$(2.45) $(2.27) $(4.38)
MetricQ3 2024Q3 2025
Net Sales ($USD Millions)$44.01 $29.35
Gross Profit Margin % (GAAP)19.4% 11.6%
Adjusted Gross Profit Margin %24.3% 18.8%
Net Loss ($USD Millions)$(13.15) $(16.39)
Diluted EPS ($)$(2.86) $(3.51)
Adjusted EBITDA ($USD Millions)~$0.02 $(4.38)
Consensus vs Actual (Q3 2025)Q3 2025
Revenue Consensus Mean ($USD)$35.73M*
Revenue Actual ($USD)$29.35M
EPS Consensus Mean ($)Unavailable*
EPS Actual ($)$(3.51)

Values retrieved from S&P Global*.

KPIs and Balance Sheet/Liquidity

KPIQ1 2025Q2 2025Q3 2025
Proprietary Brand Sales Mix (%)55% —“Best of 2025” (qualitative)
Consumables Mix (%)—~80% of sales —
Cash ($USD Millions)$13.73 $10.99 $10.65
Revolver Availability ($USD Millions)$17.0 $9.0 ~$4.0
Liquidity ($USD Millions)$30.7 $20.0 $14.7
Total Debt ($USD Millions)$127.3 $122.6 $122.5
Net Cash from Ops ($USD Millions)$(11.76) $1.72 ~$(0.04)
Capex ($USD Millions)$(0.24) $(0.28) $(0.17)
Free Cash Flow ($USD Millions)$(12.01) $1.44 $(0.21)

Note: HYFM manages inventory as one operating segment; mix disclosures provided qualitatively and in remarks .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted Gross Profit Margin (%)FY 2025“Improved vs 2024” (directional) ~20% Raised specificity (quantified)
Adjusted SG&AFY 2025Reduced YoY Reduced YoY (reaffirmed) Maintained
Inventory Reduction & Free Cash FlowFinal 9 months of 2025Positive FCF; inventory reduction Positive FCF; inventory reduction (reaffirmed) Maintained
Capital ExpendituresFY 2025< $2M < $2M (reaffirmed) Maintained
Tariff CommentaryFY 2025High tariffs could negatively impact High tariffs could negatively impact (reaffirmed) Maintained
Net Sales / Adj. EBITDA / FCF GuidanceFY 2025Withdrawn due to tariff uncertainty Not reinstatedMaintained withdrawn

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 2025)Previous Mentions (Q2 2025)Current Period (Q3 2025)Trend
Proprietary brand focusSequential mix improved to 55%; emphasis on nutrients/grow media Mix softened in durables; plans to invest and optimize product portfolio “Best proprietary brand mix of 2025”; continued focus Improving mix toward proprietary
Restructuring/cost actionsOngoing SG&A cuts; footprint reduction; portfolio review New restructuring: rationalize >1/3 SKUs/brands; $3M+ savings; DC/manufacturing reductions Manufacturing consolidation (2 facilities) with ~$2M incremental savings; line of sight to ~$4M more Deepening cost actions
Tariffs/macroTariff uncertainty; consumables insulated; durable exposure to China Managing tariff costs; shared/vendor pass‑through; alternative sourcing High tariff risk reaffirmed in outlook Ongoing headwind
Industry oversupplyCannabis oversupply pressuring volumes/pricing Durable category very soft; retail consolidation Continued oversupply and margin impact from lower production volumes Persistent pressure
Diversification (non‑cannabis/international)Non‑cannabis/non‑US/Canada mix >25% of sales; product tweaks for broader markets International sales improved; selective distributed brand partnerships Strategy reaffirmed; focus on high‑quality revenue streams Gradual improvement
Liquidity/creditLiquidity $30.7M; covenant‑light term loan; revolver extended Liquidity $20.0M; term loan prepayment; revolver $22M max Liquidity $14.7M; revolver availability ~$4M; in covenant compliance Lower liquidity but adequate

Management Commentary

  • “In the third quarter we achieved our best quarterly proprietary brand sales mix of 2025… Despite this sales mix improvement, lower manufacturing production volumes hindered our Adjusted Gross Profit Margin… consolidate our two remaining U.S. manufacturing facilities… estimated $2 million in annual cost savings incremental to the $3 million originally announced last quarter… taking action against further estimated annual cost savings of $4 million” — CEO John Lindeman .
  • “I am excited to return to the CEO role and remain fully committed to Hydrofarm’s success and restoring the company to profitability, building on the significant progress we’ve made.” — Chairman & incoming CEO William Toler .
  • Q3 financials highlight margin pressure primarily due to lower net sales and lower manufacturing production volumes; SG&A reductions driven by lower headcount, bonus, and facility costs tied to restructuring .

Q&A Highlights

  • Tariffs: Management aims to share/push through incremental tariff costs to vendors/customers, evaluate alternative sourcing, and focus on proprietary consumables which are less exposed; uncertainty remains high .
  • Product portfolio rationalization: Rationalized >1/3 SKUs/brands, mainly underperforming durables/distributed brands, to improve margins and simplify operations, expecting adjusted gross margin improvement over time .
  • Diversification: Non‑cannabis and international growth via European/Asian partners and product modifications (e.g., SunBlaster Nano/Halo lights, chillers, rotainers) to broaden end markets .
  • Regulatory backdrop: Encouraged by signs of momentum on rescheduling and safer banking; potential to free capital for growers, aiding demand and cash flows across end customers .

Estimates Context

  • Revenue missed consensus: $35.73M estimate vs $29.35M actual — significant miss consistent with industry oversupply and manufacturing volume issues highlighted by management . Values retrieved from S&P Global*.
  • EPS consensus was unavailable (no published Primary EPS Consensus Mean) for Q3 2025; thin analyst coverage likely limits consensus utility*.
  • Near‑term estimate adjustments: Consensus revenue and margin expectations may need to reflect lower manufacturing volumes, continued portfolio pruning, and quantified full‑year adjusted gross margin (~20%) guidance . Values retrieved from S&P Global*.

Key Takeaways for Investors

  • Revenue/headwinds: Q3 revenue decline and consensus miss underscore durable category weakness and oversupply; watch for demand signals tied to regulatory progress and industry normalization .
  • Cost execution as primary lever: Consolidation of two U.S. manufacturing sites (target ~$2M annual savings) atop $3M prior actions, with line of sight to ~$4M more; SG&A cuts sustained (13th straight quarter) .
  • Margin trajectory: Full‑year adjusted gross margin guided to ~20% with mix shift to proprietary and restructuring benefits; track quarterly progress vs this target .
  • Liquidity/credit profile: Liquidity $14.7M and covenant‑light term loan maturing 2028 provide runway; revolver availability ~$4M at quarter end; monitor working capital and FCF execution .
  • Portfolio quality: Rationalization of underperforming distributed/durable products reduces complexity and should lift margins over time; evaluate proprietary brand performance trends in nutrients/grow media .
  • Leadership transition: CEO change back to Toler may catalyze narrative around profitability restoration and operational discipline; assess any strategic refinements post‑transition .
  • Risk monitoring: Tariff exposure in durables and Nasdaq listing risk remain disclosed factors; maintain caution on near‑term volatility until industry demand and tariff path clarify .
Note: HYFM indicated all operations are managed as one operating segment and continues to provide non‑GAAP reconciliations for Adjusted Gross Profit, Adjusted SG&A, Adjusted EBITDA, and Free Cash Flow **[1695295_2073343_3]** **[1695295_0001695295-25-000014_hyfm-ex991x20250930.htm:6]**.